Strategic Audit (Final Draft)

Yali Wen 1
California State University, Long Beach
MGMT 425
Strategic Audit – Activision Blizzard, Inc.
Prepared By
Yali Wen
Spring 2015
Instructor: Bruce Sparks

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In memory of:
My good friend and granduncle:
谭耀华
(1962~2015)

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Table of Contents
I. Current Situation ........................................................................................4
Current Performance ........................................................................................................4
Strategic Posture ...............................................................................................................5
II. Corporate Governance ................................................................................9
Board of Directors .............................................................................................................9
The Roles of the Board ..............................................................................................................................12
Summary .......................................................................................................................................................13
Top Management .............................................................................................................14
Members of the Top Management .........................................................................................................14
Summary .......................................................................................................................................................16
III. External Environment: Opportunities and Threats ...............................17
Natural Physical Environment ......................................................................................17
Societal Environment ......................................................................................................17
Task Environment ..........................................................................................................21
Summary ..........................................................................................................................24
IV. Internal Environment: Strengths and Weaknesses ................................24
Business Model ................................................................................................................24
Corporate Culture ...........................................................................................................24
Corporate Structure .......................................................................................................25
Corporate Resources .......................................................................................................26
Summary ..........................................................................................................................30
V. Analysis of Strategic Factors (SWOT).....................................................30
Situational Analysis .........................................................................................................30
Review of Mission and Objectives .................................................................................31
VI. Strategic Alternatives and Recommended Strategy ................................31
Alternatives Strategies ....................................................................................................31
Recommended Strategies ................................................................................................35
VII. Implementation ......................................................................................35
VIII. Evaluation and Control..........................................................................37
Appendix.........................................................................................................39

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I. Current Situation
A. Current Performance
When it comes to video gaming, most gamers would have heard of some big titles like
Call of Duty®, Guitar Hero®, War of Warcraft®, Diablo®, etc. As the creator behind the
scene, Activision Blizzard is now the leader of the gaming software industry. It was
created after the merger of Activision, Inc. and Vivendi Games (original holdings
company for Sierra Entertainment and Blizzard Entertainment) in 2008. After the merger,
the company surpassed its long-term competitor Electronic Arts (EA) and became the
market leader.
In 2014, Activision Blizzard held about 16.35 % of the total market while Electronic Arts
held about 11.69 %i. As shown in Chart 1, Activision Blizzard’s revenue almost doubled
after the merger and continued to grow over the years. It reached the peak of 4.8 billion
in 2012 due to the released of Diablo III® and then slightly declined in 2013 and finally
maintained at about 4.4 billion in 2014ii.
The company’s return on investments are also above average. Compared to the industrial
average for large companies, Activision Blizzard has 7% of return on assets and 14.16%
(pre-tax) of return on equity while the average of ROA and ROE is only 1.9% and 5.3%
(pre-tax).
However, the company’s gross margin is at 65.4% and lower than the industrial average
of 84.5%. It may be mainly contributed to its emphasis on quality. As implied in its
mission statements, Activision Blizzard strives to be the best and provide not just the
ordinary, but epic gaming experience to gamers. That vision and commitment are the
keys to the company’s success.
Chart 1

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B. Strategic Posture
As a leading company in the gaming software industry, Activision Blizzard strives to be
the best. Such dedication also reflected on its mission statements.
MissionStatement (Activision):
“We continue to pursue our mission to be one of the largest, most profitable and
well-respected interactive entertainment software companies of the world.”
MissionStatement (Blizzard):
“Dedicated to create the most epic entertainment experiences.....ever.”
Objectives:
Continue to be a worldwide leader in the development, publishing, and
distribution of high-quality interactive entertainment software, online content and
services that deliver highly satisfying entertainment experiences.
Continue to Improve Profitability. We continually strive to manage risk and
increase our operating efficiency with the goal of increased profitability. We
believe the key factors affecting our future profitability will be the success of
proven franchises and genres, cost discipline, and our ability to benefit from the
continued growth of online and digital revenue opportunities.
Create Shareholder Value. We continue to focus on enhancing shareholder
returns through profitable operations and strong cash flows. As a result, we expect
to continue to achieve long-term growth and to deliver returns to our
shareholders.
Grow Through Continued Strategic Acquisitions and Alliances. We intend to
continue to evaluate the expansion of our resources, the geographic reach of our
products, and our intellectual properties library through acquisitions, strategic
relationships, and key licensing transactions. We will also continue to invest in,
and build on, existing alliances and relationships. In addition, we will continue to
evaluate opportunities to increase our proven development expertise through the
acquisition of, or investment in, selected experienced software development firms.
Focus on Delivery of Digital Content and Online Services. We continue to shift
towards digital delivery of content and to establish and develop direct and long-
term relationships with our gamers. We will also continue to support, maintain
and enhance the online communities for our games and franchises, such as the
World of Warcraft® and Call of Duty® online communities. We believe that
focusing our efforts on online product innovations, such as additional online
content, services and social connectivity, provides lasting value to our global
communities of players. In addition, we are expanding into new business models

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for the digital delivery of content, including offering free-to-play games with
monetization through in-game micro-transactions, as well as increasing our
presence on new digital platforms, such as mobile and tablet devices.
Strategies:
Activision:
1. Create, Acquire and Maintain Strong Franchises. Activision focuses on
development and publishing activities, principally for products and content
that are, or have the potential to become, franchises with sustainable mass
consumer appeal and recognition. It is our experience that these products and
content can then serve as the basis for sequels, prequels and related new
products and content that can be released over an extended period of time. We
believe that the publishing and distribution of products and content based on
proven franchises enhances predictability of revenues and the probability of
high unit volume sales and operating profits. Our successful intellectual
properties include the Call of Duty® and Skylanders® franchises, and we
intend to continue development of owned franchises in the future. We also
have an exclusive 10- year alliance with Bungie, a developer of successful
game franchises, for Destiny®, which was released on September 9, 2014.
2. Execute Disciplined Product Selection and Development Processes. The
success of our publishing business depends, in significant part, on our ability
to develop high-quality games that will generate high unit volume sales. Our
publishing units have implemented a formal control process for the selection,
development, production and quality assurance of our products. We apply this
process, which we refer to as the "Greenlight Process," to all of our products,
whether they are externally or internally developed. The Greenlight Process
includes regular in-depth reviews of each project at important stages of
development by a team that includes many of our highest-ranking operating
managers and enables coordination among our sales, marketing and
development staff at each step in the process. We develop our products using
a combination of our internal development resources and external
development resources acting under contract with us. We typically select our
external developers based on their track records and expertise in producing
products in the same category. One developer will often produce the same
game for multiple platforms and will produce sequels to the original game.
We believe that selecting and using development resources in this manner
allows us to leverage the particular expertise of our internal and external
development resources, which we believe enhances the quality of our products
and accelerates the timing of releases.
3. Focused Product Offerings, Diversity in Platforms and Geographies. We
believe Activision has aligned its product offerings and cost structure to
position the business for long-term growth. Through our online-enabled

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products and content, we believe we are best positioned to take advantage of
retail and digital distribution channels that allow us to deliver content to a
broad range of gamers, ranging from children to adults and from core gamers
to mass-market consumers and to "value" buyers seeking budget-priced
software, in a variety of geographies. Presently, the majority of products that
we develop, publish and distribute operate on the PS4®, PS3®, Xbox One®,
Xbox 360®, Wii U®, and Wii® console systems, and the PC. In addition, we
create and distribute products for emerging and rapidly growing online-
enabled platforms, such as Xbox Live® and PlayStation Network®, among
others, where we support in-game integration and bring together online
experience and gameplay for our consumers. We typically offer our products
for use on multiple platforms to reduce the risks associated with any single
platform, spread our costs over a larger installed hardware base, and increase
unit sales. We intend to continue to offer both online and packaged software
and games with localized content in different geographies.
Blizzard:
1. Maintain and Build upon Our Leadership Position in the Subscription-Based
MMORPG Category and PC Online Categories. Blizzard plans to maintain
and build upon our leadership position in the subscription-based MMORPG
category by regularly providing new content, game features and online
services to further solidify the loyalty of our subscriber base, as well as to
expand our global game footprint to new geographies.
We believe that the PC will remain a vibrant online platform throughout the
world. The large global PC installed base and the continuing development of
broadband connectivity facilitates online games and community experiences
while creating access to new potential customers.
2. Expand our Intellectual Properties and Franchises into New Game
Categories and Platforms. Blizzard plans to maintain and build upon its
intellectual properties and franchises by developing new content and games
under new business models, such as free-to-play, and on new platforms, such
as console and mobile platforms. By leveraging its existing intellectual
properties and franchises and offering new content, game play and platform
options, Blizzard expects to continue to expand its Battle.net® community
and attract new customers.
Policies:
Activision:
“Greenlight Process”
Regular in-depth reviews of each project at important stages of development
by a team that includes many of our highest-ranking operating managers and
enables coordination among our sales, marketing and development staff at
each step in the process.

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Blizzard:
“Eight Principles”
1) Gameplay First
Everything we do at Blizzard Entertainment is based on the success of the
gaming experiences we provide our players. The goal of each discipline
within the company -- be it art, programming or customer support -- is to
make our games as fun as possible for as many people as we can reach.
2) Commit To Quality
“Blizzard Polish” doesn’t just refer to our gameplay experiences, but to every
aspect of our jobs. We approach each task carefully and seriously. We seek
honest feedback and use it to improve the quality of our work. At the end of
the day, most players won’t remember whether the game was late -- only
whether it was great.
3) Play Nice; Play Fair
In our business first impressions are important -- but lasting impressions are
everything. We strive to maintain a high level of respect and integrity in all
interactions with our players, colleagues, and business partners. The conduct
of each Blizzard Entertainment employee, whether online or offline, can
reflect on the entire company.
4) Embrace Your Inner Geek
Everyone here is a geek at heart. Cutting-edge technology, comic books,
science fiction, top-end video cards, action figures with the kung-fu grip….
Whatever it is they’re passionate about, it matters that each employee
embraces it! Their unique enthusiasm helps to shape the fun, creative culture
that is Blizzard Entertainment.
5) Every Voice Matters
Great ideas can come from anywhere. Blizzard Entertainment is what it is
today because of the voices of our players and of each member of the
company. Every employee is encouraged to speak up, listen, be respectful of
other opinions, and embrace criticism as just another avenue for great ideas.
6) Think Globally
Everywhere on the planet there are people who play Blizzard Entertainment
games. While respecting the cultural diversity that makes people unique, we
strive to grow and support our global gaming community. We also seek the
most passionate, talented people in the world to enrich our company and help
us forge the future vision of Blizzard Entertainment.
7) Lead Responsibly

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Our products and practices can affect not only our employees and players --
but the industry at large. As one of the world’s leading game companies,
we’re committed to making ethical decisions, always keeping our players in
mind, and setting a strong example of professionalism and excellence at all
times.
8) Learn & Grow
The games industry is ever-changing. Technology improves, techniques
change, and design philosophies become outdated. Since the founding of
Blizzard Entertainment, we’ve worked to improve through experience,
teaching one another and cultivating the desire to be the best at what we do.
We see this as an individual responsibility as well as a company one.
Employees can count on their peers, managers, and the company itself to be
supportive and help them gain the knowledge and training they need.
II. Corporate Governance
A. Boardof Directors
Members of the Board (from the company’s official website, summary at the end)
1. Robert J. Corti – Director
Mr. Corti has served as a director of Activision Blizzard since December 2003 and
serves as the chairperson of our Audit Committee. Mr. Corti has more than 25 years
of experience at Avon Products. Mr. Corti joined Avon Products’ tax department as a
tax associate in 1976 and held positions of increasing responsibility in the company’s
finance department throughout his tenure there, including serving as an executive vice
president and the chief financial officer of Avon Products from 1998 until he retired
from the chief financial officer role in November 2005 and as an executive vice
president in March 2006. Mr. Corti has served on the board of directors of Bacardi
Limited since June 2006. In addition, Mr. Corti has served as a member of the board
of directors of Avon Products Foundation since 1998 and its chairman since 2006 and
as a member of the Manhattan Chapter of the Cystic Fibrosis Foundation since
January 2012, where he serves as the vice president of the board. In addition, he was
a director of ING Direct from January 2008 until January 2012. Mr. Corti holds a
B.A. degree in accounting from Queens College and an M.B.A. degree in taxation
from St. John’s University. Mr. Corti is also a certified public accountant.
2. Brian G. Kelly – Chairman of the Board
Mr. Kelly has held various positions of responsibility with Activision Blizzard since
1991, including serving as a director of the Company since July 1995, the co-
chairman of our Board from October 1998 until October 2013 and chairman of our
Board since that time. Mr. Kelly holds a B.A. degree in accounting from Rutgers
University and a J.D. degree from Fordham University School of Law.

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3. Robert A. Kotick – Director; President and Chief Executive Officer
Mr. Kotick has been a Director and Chief Executive Officer of Activision, Inc. since
February 1991 until July 2008, when he became Chief Executive Officer of
Activision Blizzard in connection with the combination of Activision and Vivendi
Games. By merging Activision, Inc.'s top selling portfolio of console and handheld
games with Blizzard Entertainment's leading PC and online subscription franchises,
Activision Blizzard is the largest, most profitable pure-play interactive entertainment
software publisher in the world with leading market positions across every major
category of the rapidly growing interactive entertainment software industry. In
addition to his responsibilities as Chief Executive Officer of Activision Blizzard, Mr.
Kotick is also a member of the Board of Directors for The Coca-Cola Company, a
member of the Board of Trustees for The Center for Early Education and he is
Chairman of the Committee of Trustees at the Los Angeles County Museum of Art,
where he serves as Vice Chairman of the Board of Directors. In addition, Mr. Kotick
is the founder and co-chairman of the Call of Duty® Endowment.
4. Barry Meyer– Director
Mr. Meyer became a director of Activision Blizzard in January 2014. At the end of
2013, Mr. Meyer retired as the chairman of Warner Brothers Entertainment Inc., an
American producer of film, television, and music entertainment. He joined Warner
Brothers as a director of business affairs in 1971 and held positions of increasing
responsibility throughout his tenure there, eventually serving as Warner Brothers’
chief executive officer and chairman from October 1999 until March 2013 and as
chairman through December 2013. Mr. Meyer co-founded the consulting firm North
Ten Mile Associates, LLC following his retirement from Warner Brothers, and
currently serves as the manager and co-chief executive officer of that firm. Mr. Meyer
is a member of the board of councilors of the USC School of Cinematic Arts, a
member of the board of directors of the Paley Center, a member of the Academy of
Motion Picture Arts & Sciences, a member and former governor of the Academy of
Television Arts & Sciences, and a member and former director of the Hollywood
Radio and Television Society. He also serves on the board of directors of Human
Rights Watch and on the advisory board of the Smithsonian National Museum of
American History. Mr. Meyer holds a B.A. degree in English from the University of
Rochester and a J.D. degree from Case Western Reserve University School of Law.
5. Robert J. Morgado – Director
Mr. Morgado has served as a director of Activision Blizzard since February 1997. Mr.
Morgado is chairman of Maroley Media Group, a media entertainment investment
company he established in 1995. He previously served as the chairman and the chief
executive officer of Warner Music Group from 1985 to 1995. Mr. Morgado serves on
the board of directors of the Maui Arts & Cultural Center. He is also a member of the
board of managers of Nest Top, the controlling shareholder of Nest Family and Nest
Learning Systems, a children’s entertainment company, and Kaanapali Kai, a real
estate investment company, where he serves as its chairman. Mr. Morgado holds a
B.A. degree in history and philosophy from Chaminade University of Honolulu and
an M.P.A. degree from The State University of New York.

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6. Peter Nolan – Director
Mr. Nolan became a director of Activision Blizzard in October 2013. Mr. Nolan is the
managing partner of Leonard Green & Partners, L.P., a private equity firm. Prior to
becoming a partner at Leonard Green & Partners in 1997, Mr. Nolan served as a
managing director and the co-head of Donaldson, Lufkin and Jenrette’s Los Angeles
Investment Banking Division from 1990 to 1997, as a first vice president in corporate
finance at Drexel Burnham Lambert from 1986 to 1990, and as a vice president at
Prudential Securities, Inc. from 1982 to 1986. Prior to 1982, Mr. Nolan was an
associate at Manufacturers Hanover Trust Company. Mr. Nolan currently serves on
the board of directors of AerSale Holdings, Inc., Aspen Dental Management, Inc.,
Motorsport Aftermarket Group, The Palms Hotel and Casino, and Scitor Corporation.
Mr. Nolan served on the Company’s Board from December 2003 until July 2008,
when he resigned in connection with the consummation of the combination of
Activision and Vivendi Games. Mr. Nolan holds a B.S. degree in agricultural
economics and finance and an M.B.A. degree, both from Cornell University
7. Richard Sarnoff – Director
Mr. Sarnoff has served as a director of Activision Blizzard since August 2005. He has
served as a senior advisor to Kohlberg Kravis Roberts & Co. since January 2011.
Previously, he was employed by Bertelsmann AG, where he served as the co-
chairman of Bertelsmann, Inc. and the president of Bertelsmann Digital Media
Investments from 2008 until January 2011. Prior to those roles, Mr. Sarnoff served as
an executive vice president and the chief financial officer of Random House, Inc. Mr.
Sarnoff also served as a member of the supervisory board of Bertelsmann AG from
2002 to 2008 and was a director of the Princeton Review from 2000 to 2009, a
director of Audible, Inc. from 2001 to 2008, and a director of Amdocs, Inc. from
2009 to 2011. During the period from 2005 to 2009, he was also the vice-chairman
and, then, the chairman of the board of the American Association of Publishers. Mr.
Sarnoff currently serves on the board of directors of Ipreo Holdings, LLC, Weld
North, LLC, Cengage Learning, and Chegg, Inc. Mr. Sarnoff holds a B.A. degree in
art history from Princeton University and an M.B.A. degree from Harvard Business
School.
8. Elaine Wynn – Director
Ms. Wynn became a director of Activision Blizzard in October 2013. Ms. Wynn is a
director of Wynn Resorts and has served in that capacity since 2000. Prior to her
current position, Ms. Wynn served in a similar capacity as director of Mirage Resorts
from 1976 to 2000. Ms. Wynn is the founding chairman of Communities in Schools
of Nevada and the chairman of the national board of Communities in Schools. In
addition, Ms. Wynn is president of the Nevada State Board of Education. She is also
on the board of trustees of the Los Angeles County Museum of Art, the board of
trustees of the Kennedy Center for the Performing Arts, the board of the Library of
Congress Trust Fund and the board of governors of the Basketball Hall of Fame. Ms.
Wynn holds a B.A. in political science from George Washington University.

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The Roles of the Boardiii
1) Direct the Affairs of Activision Blizzard, Inc. (the "Company") for the Benefit of
Stockholders
Subject to and in accordance with the certificate of incorporation (as amended from
time to time, the “Certificate of Incorporation”) and bylaws (as amended from time to
time, the “Bylaws”) of the Company, the property, business and affairs of the
Company are managed by its Board of Directors (the “Board”). The primary
responsibility of the Board is to oversee the affairs of the Company for the benefit of
stockholders. The Board agrees that day-to-day management of the Company is the
responsibility of the Company’s Chief Executive Officer (the “CEO”) and that the
role of the Board is to oversee the CEO’s performance of that function.
2) Approval of Annual Strategic, Financial and Operating Plans
The Board reviews and approves the annual strategic, financial and operating plans
prepared by the CEO and presented to the Board in accordance with the Bylaws.
3) Long Range Planning
Long range strategic issues should be discussed as a matter of course at regular Board
meetings. The Board generally devotes one of its regularly scheduled meetings each
year to discussion of a three-year business plan and other longer-term strategic
planning.
4) Ethical Business Environment
The Board insists on an ethical business environment that focuses on adherence to
both the letter and the spirit of regulatory and legal mandates. The Board expects that
management will conduct operations in a manner supportive of this view. The Board
is committed to avoiding any transactions that compromise, or appear to compromise,
director independence. The Board also oversees a corporate compliance program,
which includes a Company code of conduct, the maintenance of accounting, financial
and other controls, and the review of the adequacy of such controls.
5) Chief Executive Officer Performance Evaluation
The CEO’s performance should be evaluated annually and as a regular part of any
decision with respect to his compensation. The Board may delegate the CEO’s
performance and compensation evaluation to the Compensation Committee, as it
deems appropriate. Notwithstanding such delegation, however, the Board as a whole
shall be responsible for the oversight of the CEO.
6) Succession Planning
The Board is responsible for succession planning, which shall include appropriate
contingencies in case the CEO retires, resigns or is incapacitated.
7) Material Transactions
The Board shall evaluate and, if appropriate, approve all material Company

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transactions not arising in the ordinary course of business, including the material
transactions identified in the Certificate of Incorporation and the Bylaws.
8) Stockholder Communications
All stockholder communications addressed to the Board or one or more directors are
directed to the Company’s Secretary for review. Stockholder communications that
relate to the Company’s accounting practices, internal accounting controls or auditing
matters are referred to the chairperson of the Audit Committee. Any other
stockholder communications that are not advertising materials, promotions of a
product or service, patently offensive materials or matters deemed, in the reasonable
judgment of the Secretary or his designee, inappropriate for the Board will be
forwarded promptly to the addressee. In the case of communications to the Board or
any group or committee of directors, the Secretary or his designee will make
sufficient copies of the contents to send to each director who is a member of the
group or committee to which the communication is addressed.
9) Stockholder Proposals
The Nominating and Corporate Governance Committee shall evaluate all stockholder
proposals submitted to the Company; determine, with the assistance of outside
advisors, if necessary, whether each such proposal is in the Company’s best interests;
and make a recommendation to the Board either in favor or against the stockholder
proposal and provide, in writing, the reasons for its recommendation.
10) Director Attendance at Annual Stockholder Meetings
To facilitate stockholder communication with the Board, all directors are expected to
attend the Company’s Annual Stockholders’ Meeting.
11) Governing Documents
The Board has adopted these Corporate Governance Principles and Policies to assist
the Board in the exercise of its duties and responsibilities and to serve the best
interests of the Company and its stockholders. These principles and policies should
be applied in a manner consistent with all applicable laws and stock market rules and
the Certificate of Incorporation and Bylaws, each as amended and in effect from time
to time. These principles and policies are intended to serve as a flexible framework
for the conduct of the Board’s business and not as a set of legally binding
obligations. The Board may modify or make exceptions to these principles and
policies from time to time in its discretion and consistent with its duties and
responsibilities to the Company and its stockholders.
Summary:
Most of the directors are external members who are also serving other companies. All
of them are experts in their fields and most of them with background knowledge on
finance, accounting, and law. About half of the board directors hold a MBA degree
and the rest hold B.A. degree in various fields. Five out of eight have served in the
board for over 10 years. The board also takes on a very active role in decision

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making. As detailed in the role of the board, it acts as a catalyst to the company’s
overall operation.
However, none of the board members appeared to have international experiences and
only Mr. Meyer has some background knowledge on human right watch. More
importantly, with only two members have past experiences in the entertainment
industry, none of the board members has prior experiences in the gaming industry.
Overall, it is an experienced, knowledgeable, and active board, but for a gaming
company that wants to expand globally, it may need more board members with
international experiences and background knowledge in the gaming industry.
B. Top Management
Members of the Top Management (from the official website, summary at the end)
1. Robert A. Kotick – Director; President and Chief Executive Officer.
Director; President and Chief Executive Officer. Mr. Kotick has been a Director and
Chief Executive Officer of Activision, Inc. since February 1991 until July 2008, when
he became Chief Executive Officer of Activision Blizzard in connection with the
combination of Activision and Vivendi Games. In addition to his responsibilities as
Chief Executive Officer of Activision Blizzard, Mr. Kotick is also a member of the
Board of Directors for The Coca-Cola Company, a member of the Board of Trustees
for The Center for Early Education and he is Chairman of the Committee of Trustees
at the Los Angeles County Museum of Art, where he serves as Vice Chairman of the
Board of Directors. In addition, Mr. Kotick is the founder and co-chairman of the
Call of Duty® Endowment.
2. Dennis Durkin – Chief Financial Officer of Activision Blizzard
Mr. Durkin has served as our Chief Financial Officer since March 2012. Prior to
joining the Company, Mr. Durkin held a number of positions of increasing
responsibility at Microsoft Corporation, most recently serving as the corporate vice
president, and chief operating and financial officer, of Microsoft ®’s interactive
entertainment business, which includes the Xbox® console business. Prior to joining
Microsoft ®’s interactive entertainment business in 2006, Mr. Durkin worked on
Microsoft ®’s corporate development and strategy team, including two years where
he was based in London, England driving pan-European activity. Before joining
Microsoft, Mr. Durkin was a financial analyst at Alex. Brown and Company. Mr.
Durkin holds a B.A. degree in government from Dartmouth College and an M.B.A.
degree from Harvard University.
3. Eric Hirshberg – President and Chief Executive Officer of Activision
Mr. Hirshberg has served as the President and Chief Executive Officer of Activision
Publishing, a subsidiary of Activision Blizzard which, along with Blizzard
Entertainment, is one of our two principal operating units, since September 2010.
Prior to joining us, Mr. Hirshberg served in positions of increasing responsibility with

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Deutsch LA, most recently serving as its co-chief executive officer and its chief
creative officer. Prior to working at Deutsch LA, Mr. Hirshberg worked at Fattal &
Collins. Mr. Hirshberg holds a B.F.A. degree from the University of California at Los
Angeles.
4. Brian Hodous – Chief Customer Officer of Activision Blizzard
Mr. Hodous became our Chief Customer Officer in July 2008 in connection with the
combination of Activision with Vivendi Games and was the Chief Customer Officer
of Activision Publishing from the time he joined the Company in November 2006
until the consummation of the transaction with Vivendi Games. Prior to joining the
Company, Mr. Hodous was employed by Cadbury Schweppes, where he was the
group director and the executive vice president of global sales from 1999 to 2006.
Prior to working at Cadbury Schweppes, Mr. Hodous served in various sales and
senior management positions of increasing responsibility with Wyeth
Pharmaceuticals, Pillsbury, Drackett Products and GlaxoSmithKline. Mr. Hodous
holds a B.A. degree in marketing and management from Marquette University.
5. Michael Morhaime – Chief Executive Officer of Blizzard Entertainment
Mr. Morhaime became Chief Executive Officer of Blizzard Entertainment and an
executive officer of Activision Blizzard in July 2008 in connection with the
combination of Activision with Vivendi Games. In February 1991, Mr. Morhaime co-
founded Blizzard Entertainment, now a subsidiary of Activision Blizzard and, along
with Activision Publishing, one of our two principal operating units, and transitioned
to the role of the company’s President in April 1998. Mr. Morhaime served on the
executive committee of Vivendi Games from January 1999, when Blizzard
Entertainment became a subsidiary of Vivendi Games, until the consummation of the
transaction with Vivendi Games. Mr. Morhaime holds a B.S. degree in electrical
engineering from the University of California at Los Angeles.
6. Humam Sakhnini – Chief Strategy and Talent Officer of Activision Blizzard
Mr. Sakhnini became our Chief Strategy and Talent Officer in February 2012. Prior
to that, he served as our Executive Vice President of Corporate Strategy and Business
Development from July 2009 until February 2012. Prior to joining the Company, Mr.
Sakhnini was a partner with McKinsey & Company in its global media and
entertainment practice. Prior to McKinsey & Company, Mr. Sakhnini founded and
co-led ISGroup, a financial technology firm that provided technology solutions to
mutual funds and hedge funds. Prior to that, Mr. Sakhnini held a number of positions
at BMO Nesbitt Burns, Canada’s largest investment bank and brokerage firm, and the
Ministry of Finance in Canada, where he worked on a variety of fiscal and monetary
policies. Mr. Sakhnini holds a B.A. degree in economics from the University of
Western Ontario, an M.A. degree in economics from Queen’s University at Kingston,
and an M.B.A. degree from Yale University School of Management.
7. Thomas Tippl – Chief Operating Officer of Activision Blizzard
Mr. Tippl has served as our Chief Operating Officer since March 2010. Prior to that,
he served as our Chief Corporate Officer from March 2009 until March 2010. In

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addition, Mr. Tippl served as our Chief Financial Officer from July 2008 until
February 2012. Mr. Tippl joined the Company as the Chief Financial Officer of
Activision Publishing in October 2005. Prior to joining the Company, Mr. Tippl
served as the head of investor relations and shareholder services at The Procter &
Gamble Company from 2004 to 2005. Mr. Tippl also served as the finance director of
Procter & Gamble’s Baby Care, Europe division and as a member of the board of
directors of the joint venture between Procter & Gamble and Fater in Italy from 2001
to 2003. Mr. Tippl co-founded Procter & Gamble’s Equity Venture Fund in 1999 and
also served as the associate director of acquisitions and divestitures for Procter &
Gamble from 1999 to 2001. Prior to 1999, Mr. Tippl served in various financial
executive positions for Procter & Gamble in Europe, China and Japan. Mr. Tippl
holds a master’s degree in economics and social sciences from the Vienna University
of Economics and Business Administration.
8. Chris Walther – Chief Legal Officer of Activision Blizzard
Mr. Walther has served as our Chief Legal Officer since November 2009 and served
as our Secretary from February 2010 until February 2011. Prior to joining us, Mr.
Walther held a number of positions of increasing responsibility within the legal
department of The Procter & Gamble Company from 1992 to 2009, including serving
as the general counsel for Central and Eastern Europe, Middle East and Africa,
general counsel for Northeast Asia and, most recently, as general counsel for Western
Europe. Mr. Walther also led Procter & Gamble’s corporate and securities and
mergers and acquisitions practices. Before joining Procter & Gamble, Mr. Walther
served as a law clerk for Senior Judge Harry W. Wellford of the United States Sixth
Circuit Court of Appeals. Mr. Walther holds a B.A. degree in history and Spanish
from Centre College and a J.D. degree from the University Of Kentucky College Of
Law.
Executive Stock Ownership Guidelines
Activision Blizzard, Inc. (the “Company”) thinks the interests of the Company’s
management should be aligned with those of the Company’s stockholders. To further
align these interests, the Company has adopted these stock ownership guidelines for
the Company’s executive officers. The Company’s Chief Executive Officer should
beneficially own Company stock with a value at least equal to three times his or her
then-current annual base salary. Each other executive officer of the Company should
beneficially own Company stock with a value at least equal to his or her then-current
annual base salary.
Summary
All of the company’s top managements are promoted internally, and most of them
have served more than three years in the company and responsible for the
corporation’s performance over the past few years. Under the company’s Executive
Stock Ownership Guidelines, the company adopted the agency theory and believed
that the company’s interest should be aligned with the management’s through stock

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compensation. Therefore, top managements’ decisions are closely tied into the
company’s performance and their self-interests.
All of them have B.A. degrees from various filed and most of them have MBA degree
as well. Five out of eight top managements have served in other well-known traded
companies like P&G, Microsoft, and Coca-Cola. The rest three executives are from
the subsidies or the merged company (Activision Publishing and Blizzard
Entertainment). So it’s safe to say that the top management team is experienced and
knowledgeable to the company’s operations.
Also, unlike the board of directors, four executives have international experiences in
Europe, Canada, Japan, China, and Africa. Furthermore, two executives from P&G
have extensive knowledge and experiences on acquisition and merger that can help
the company to better implement its current growing strategy.
However, lack of experiences in the gaming industry is still a major concern for the
company’s top management team.
III. External Environment: Opportunities and Threats (SWOT)
A. Natural Physical Environment: Sustainability Issues
Though from the first glance, the natural physical environment seems to have little effect
on the gaming software industry, some natural factors can potentially affect or disrupt the
company’s operations:
1. Changes in natural resources like crude oil or other energy sources may lead to
increase in energy price and increase the company’s shipping and operation costs.
(T)
2. Natural or manmade disasters may disrupt manufacturing, transportation, or
communications. (T)
3. Solar phenomenon may disrupt power supply or internet connection and affect the
company’s operations and consumers’ experiences of the electronic
entertainments. (T)
B. SocietalEnvironment
1. Economic
1) Personal Income (O1)
In the gaming software industry, demand is driven primarily by personal income.
It rose 3.4 percent in October 2013 compared to the same month in 2012, and the
total US revenue for software publishers rose 10.6 percent in the third quarter of
2013 compared to the previous year. Furthermore, US personal consumption
expenditures on electronic entertainment and musical instruments are forecasted

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to grow at an annual compounded rate of 4 percent between 2013 and 2017. All
these indicate a promising future for the gaming software industry.
2) GDP (O)
As non-essential goods, gaming software are highly dependence on personal
income and consumer preferences. As video game playing becomes more
mainstream, the impact of economic downturns increases. So the nation’s GDP
has increasing impacts on the gaming industry. Recovering from the downturn in
2008, US GDP is slowly climbing back to the previous level. However, huge
growth is unlikely in the near future and the overall economy is still volatile, so it
is important to monitor the nation’s GDP and economy closely.
3) Rising Development Costs (T)
The rising development costs in recent years is increasing the risk of new product
development and can pose a threat to the company. It also rises gamers’ standards
on the gaming experiences and increases the entry barriers for new competitors.
In other words, nowadays, companies have to invest enough money to create a
game that is “worth trying” for many gamers, and that can be very demanding to
companies with insufficient resources.
2. Technological
1) Technology Advancements (O2/T1)
Technology advancements propel the rapid rate of change in the gaming industry.
Better technologies usually mean better gaming experiences and opportunities for
new product developments. On the other hand, however, the rapid technology
development can lead to fast product obsolete circle and ongoing high R&D
expenses on the next, “maybe successful” technologies and products.
Furthermore, disruptive technologies can emerge and threaten the company’s
well-established products.
2) Digital Distribution (O)
Technology development enable the gaming software industry to go beyond the
brick-and-mortar way and distribute their products through digital copies. Some
researches show that a growing number of game players are purchasing video
games as digital downloads rather than physical boxed products, and internet sales
are a growing segment for video games software. However, majority gamers are
still preferred the actual copies. From my own experiences, for example, I prefer
to get an actual copy so that I can return it when I don’t like it or resell it after I
beat it, etc. There are many others reasons contribute to this preference too, so the
company should learn more about this phenomenon before going all-out on the
digital distribution.
3) Online Communities & Social Networking Websites (O3)
Beside that the whole industry was made possible largely due to the invention of
internet, the internet also plays an essential roles on its profitability. The

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profitability of the gaming software industry is driven by understanding of
consumer needs, timely product development, and effective marketingiv. All these
can be facilitated by the use of online communities and the various social
networking websites. They provide platforms that allow the company to better
understand and communicate with its target markets, create products that fit the
current trends, and conduct effective online marketing campaigns.
4) More Immersive Environments (O)
To enrich the gaming experience, new technologies strive to create more
immersive environments for gamers. These new, virtual reality gaming
experiences can create a whole new market and act as competitive advantage
against the rising mobile gaming market.
For example, nowadays,you can “Play” a game in almost anywhere, your TV, your
tablet, or your phone.Convenience is a major contributorto the rise of the phone game
population, and as the graphics and the contents ofthe mobiles games improved with the
new technologies,traditional gaming platforms are losing their competitive edges.But
imagine, if you are no longer just play the game, but “Live” in the game, and that will be
an experience that the regular phone games cannot offer. Something that the future
gamers are willing to pay the extra to experience.
5) Piracy & Hacking Activities (T)
Piracy has been estimated to cost the US gaming industry more than $3 billion per
year iv. Though the US’s legislations are relatively effective to protect intellectual
properties, it is an ongoing battle for the gaming industry to fight against copy
right infringements.
3. Political–legal
1) Entertainment Software Association/ESA (T)
The entertainment and gaming software industry is largely self-regulated. The
Entertainment Software Association (ESA) is a leading industry group that rate
the games before their releases. The ESA opposed plans for a government-run
game rating system, and it decreases the government’s influences on the gaming
software industry. Though that creates a relatively stable environment, potential
changes can have huge effects on the gaming industry.
2) Consumer Advocacy Groups (T)
Consumer advocacy groups have challenged the industry on violence and sexually
explicit content. It is especially important to monitor their effects on the
company’s controversial Call of Duty® Franchise.
3) State Legislations (T)
Some States have tried to regulate the sale of violent games to minors. The
company should monitor the effects on the company’s sales and target markets.
4. Sociocultural

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1) Increased Career Interest towards the Gaming Industry (O)
As a generation that was “wired” from birth, generation Y has a huge gamer
population. While many of them are attracted by the gaming industry, they can
provide many new and creative talents for the industry.
2) Gamer Demographics (O)
Average age of video game players is 30, and about two-thirds of gamers are 18
or older, almost 50 percent of gamers are women. More Women Gamers play
massively multiplayer online games, particularly in the role-playing genre
(MMORPG games). Women are also frequent players of casual games, such as
puzzles and word games. The new, wider understanding of the gamer
demographics can create new opportunities. However, the unconventional gamer
demographics can also lead to misconception towards the target markets. So it’s
important to think beyond the stereotypes and learn more about the customers.
3) More Massively Multiplayer Online Games (T2)
Competition intensified as gaming become more of a mainstream activity. New
online games mushroomed in the last decade, especially in the free-to-play
MMORPG genre. It’s a big challenge for a company who has a well-established
MMORPG franchise with significant market share (War of Warcraft®). The new
free-to-play method decreases consumers’ switching costs and are pulling fans
from the subscription-based MMORPG games like War of Warcraft®. Other stiff
competitors like The League of Legends® (multiplayer online battle arena) and
The Elder Scrolls Online® (another subscription-based MMORPG) are also
threatening WOW’s leader position.
4) Mobile/Casual Gaming (T3/O4)
The handheld gaming devices and powerful smartphones are opening new
markets in the video game industry; however, they also divided some gamers’
attentions from the traditional console or PC (Personal Computer) gaming.
5) Industry Consolidation (O)
Driven by the increasing cost of product development, publishers continue to
acquire development studios to gain greater control over their product portfolios.
As for the merger in 2008, strategic consolidation gives the company more
capitals and resources to deal with the opportunities and threats ahead.
6) Trend for In-Game Advertising and Publicity (O)
Traditional, in-game advertisements and product placements are uncommon to
avoid distractions from the gaming experiences. But as gaming become more
mainstream, publishers are now more willingly to put some ads in the games for
publicity and additional revenue opportunities. For example, Frank Underwood,
the protagonist of the TV show “House of Cards”, showed up in the trailer of the
Call of Duty: Advanced Warfare® after he played Call of Duty® in one of the TV
episodes. His debut generate some positive publicity in both the “House of Cards”
and the Call of Duty® communities.

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7) Dependence on Hardcore Gamers (T4)
It’s common for the gaming industry to depend on a handful of customers for a
significant portion of their revenue, though it provides a relatively stable and
predictable demand, it makes the industry vulnerable to sudden changes of taste
or preference.
5. International
1) Chinese Market (O5)
Increasing consumer affluence in the Chinese markets makes the country one of
the world's top growing markets for the video game software industry. The video
game industry in China generates almost $10 billion in sales. Such enormous
market is a huge opportunity for many; however, the company should proceed
with cautions and preparations. Local preference differences, local gaming
community, local competitors, and the copy right infringement can be few of the
many challenges in this new market.
2) Increased Labor Costs in China (T)
As the world’s largest manufacturing country, China is experiencing constant
increases on labor costs. That may affect the prices of our suppliers and other raw
materials.
3) International Currency Exchange Rates (T5)
Almost 50 percent of the company’s revenue comes from international sale, so
fluctuations in currency exchange rates may have a material adverse effect on the
company’s business, financial condition, results of operations, profitability, cash
flows or liquidity. Furthermore, as mentioned in the annual report, the company is
not particular experienced in foreign trading and result in some loss due to
exchange rate fluctuationsv.
4) International Hacking Activities (T)
All information technology systems and networks are potentially vulnerable to
damage or interruption from a variety of sources, including but not limited to
cyber-attacks, malicious software, security breach, energy blackouts, natural
disasters, terrorism, war and telecommunication failures v. Same threats exist all
over the world and can potentially threaten the company’s operations.
C. Task Environment
1. Threat of New Entrants
Medium to Low:
1) Capital-intensive
2) Rising development cost

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3) Crowd funding
a. Start-up game developers are using crowd funding to finance the
cost of creating new game titles. Using websites such as
Kickstarter, game makers can promote their game and offer
rewards to people who pledge money to develop the project.
b. Independent game developers who use crowd funding could
become a potential competitive threat to traditional publishers.
However, some incidences (high startup failure rate, established
publishers disguise as startups, legal issues, etc.) have discredited
the crowdfunding model and made it harder to raise money from
this channel.
2. Bargaining Power of Buyers
Medium to High:
1) Well-established franchises with huge fan base
2) “Networking” effect increases game attractiveness and buyers’ switching
costs
3) Free-to-Play games minimize buyers’ switching costs
4) Used game sales affect buyer decisions and choices
3. Threat of Substitute Products or Services
High
1) Compete as a leisure-time activity with TV, movies, music, the Internet,
and other forms of electronic and non-electronic entertainment
2) Handheld gaming devices and powerful smartphones are opening new
markets in the video game industry and affecting the market share of the
traditional gaming
4. Bargaining Power of Suppliers
Medium to High
1) Suppliers for the physical video game discs: both manufacturing costs and
switching costs are low for the actual video game discs, and the company
can easily find many suppliers
2) Suppliers for the gaming platforms: software publishers and developers
depend highly on hardware system sales. Game console manufacturers
also require royalties from platform licensees (software publishers and
developers) for each unit manufactured, and some of the licensers are also

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competitors (Ex: Sony, the manufacture of PlayStation, also develops
games).
3) Supplier for shelf spaces: shelf space supplies is a premium commodity,
especially during the peak holiday selling season, and retailers set
aggressive requirements for shelf space access.
5. Rivalry among Competing Firms
High
1) Other game developers and publishers in the gaming industry are very
competitive, and some are also the licenser of the gaming platforms
(Sony® for PlayStations®).
2) The company’s popular franchises (War-of-Warcraft®, Call-of-Duty®,
etc.) are under threat of imitations
3) More Massively Multiplayer Online Games, especially Free-to-Play
MMORPG games are threatening the market share of its major
subscribed-based MMORPG games.
6. Relative power of unions, governments, special interest groups, etc.
1) Government: Medium to Low
The entertainment and games software industry is largely self-regulated by
ESA. However, potential changes may catch the industry off-guard.
2) Interest Group: Medium to High
Consumer advocacy groups have challenged the industry on violence and
sexually explicit content. Though they may not affect the release and
ratings directly, they can influence government and the society’s attitudes
towards the industry.
3) Unions/Employees: High
Talented and innovative employees are the driving force of the gaming
industry. The company have to strive to attract and maintain the brightest
minds in the field, and the relationship between the company and its
employees seems benevolent. To date, the company has not experienced
any labor-related work stoppages v.
4) Owners of the Intellectual Property Rights: High
As mentioned in the annual report, the success of the company is dependent
on its ability to continue to obtain the intellectual property rights on
reasonable terms and at reasonable rates v.

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D. Summary
EFAS for Activision Blizzard, Inc.
IV. Internal Environment: Strengths and Weaknesses (SWOT)
A. Business Model (W1)
Hit-or-Miss Product Releases (Business Model)
According to First Research, hit titles account for a large portion of the industry's total
revenue. Gaming publishers and developers depend on hits to provide large revenues to
offset the poor sales of many product releases iv. As the result, consistently delivering
high-quality titles is essential to the company’s profitability and survival.
Acknowledging the downfall of this business model, Activision Blizzard strives to obtain
(though merger, acquisition, alliance, licensing, etc.) hit titles, reduce risks for new
product development (“Greenlight Process”), and invest heavily on the successful
franchises. As the result, despite the embedded weakness, the company is now thriving
on some big hits.
B. Corporate Structure (S1/W2)
After the merger in 2008, Activision Blizzard is now operating under three strategic
business units (SBUs) with different objectives, strategies, policies, and programs.
Overall, it operates in a divisional structure based on function and product lines, and
decision-makings are decentralized to different business units.
External Factors WeightRatingWeighted ScoreComments
Opportunities
O1 Observed future increases onpersonalincome 0.10 4.50 0.45 Market leader benefits most whenthe whole industrygrows
O2 Technologyadvancement 0.15 4.30 0.645 More opportunities for new product developments
O3 Online communities and socialnetworkingwebsites 0.10 3.50 0.35 Not fullyutilize the potentialofthese websites (especiallyActivision)
O4 Mobile/casualgaming 0.05 3.50 0.175 New risingmarket; enter now mayas a later mover
O5 Potentialofthe Chinese market 0.10 3.80 0.38 Attractive market withmanychallenges
Threats
T1 Technologyadvancement 0.10 3.50 0.35 Fast product obsolete circle; threats fromdisruptive technologies
T2 More massivelymultiplayer online games 0.15 3.80 0.57 Stiffcompetitionis threateningthe company's market position
T3 Mobile/casualgaming 0.10 3.50 0.35 Dividinggamers' attentions fromtraditionalgaming
T4 Dependence onhardcore gamers 0.10 4.00 0.4 20/80 rule, vulnerable to suddenchanges oftaste and preference
T5 Internationalcurrencyexchange rate 0.05 3.50 0.175 Fluctuations result inabout 224 millions ofloss from2012 to 2014
Total Scores 1.00 3.845

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Three Operating Segments:
1. Activision Publishing, Inc. and its subsidiaries
Publishing interactive entertainment software products and downloadable
content.
2. Blizzard Entertainment, Inc. and its subsidiaries
Publishing real-time strategy games, role-playing games and online
subscription-based games in the MMORPG category.
3. Activision Blizzard Distribution
Distributing interactive entertainment software and hardware products.
C. Corporate Culture (S/W3)
According to the official website of Activision Blizzard, the company was rated as one of
the fortune 100 best companies to work for in 2015iii.
As two major players in the industry, both Activision and Blizzard have strong and
distinctive cooperate cultures before the merger in 2008, and such cultures carried on
after the merger.
Specifically, Activision emphasizes “passionate people, creative environment”,
encourage creativity and ideas throughout the organization, and believes “good game
start with good people”.
Similarly, Blizzard emphasizes fun, passion, collaboration, and career developments.
Though there were doubts and discontentment about the cultural integration before and
right after the merger, there were only few incidents reported.
Two reasons contribute to the situation:
1) The merged gaming companies’ cultures are close enough to avoid major
internal cultural conflicts
2) The merged gaming companies still operate independently as separate entities.
The second reason is the major contributor to the seemingly harmonious integration;
however, it may be compromised when major changes (structure changes, etc.) occur.
But according to the company’s current strategy, structural changes are unlikely in the
near future, so the different business units are now able to keep their independent cultures
intact and strong.
My major concern is there are potential conflicts between the company’s and the business
units’ overall objectives, strategies, policies, and culture. Though both major business
units emphasize a fun, creative, and performance-driven culture, the overall company
objectives and some strategies are more profit-driven and risk-averted. As the result,

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confusion and conflicts may rise when the company fail to manage these somewhat
contradictory concepts.
D. Corporate Resources
1. Marketing
1) Market Leaders With Well-Established Titles And Franchises (S2)
After the merger in 2008, Activision Blizzard surpassed its major competitor
Electronic Art (EA) and became the leader of the overall gaming software market.
In addition to its leading position, Activision Blizzard hold some well-established
titles and franchises that account for the majority of its revenues. Successful
franchises like Call of Duty®, War of Warcraft®, and the new Skylanders®
franchises are occupying the leading positions in many gamers’ consideration
sets. The company’s distinctive brand recognition is one of its biggest assets.
2) Increase Market Share Through Merger, Acquisitions And Alliances (S/W)
As mentioned, Activision Blizzard as the current market leader is the result of the
major merger in 2008. Aside from the major merger, the company also acquired
or formed alliances with other companies like Bizarre Creations (creator the
Project Gotham Racing® and Geometry Wars® franchises), Red Octane (Guitar
Hero®), and Bungie (Halo® and Destiny®) to expand its gaming empire. If
managed well, this strategy can be an effective way to grow. However, it can lead
to internal conflicts and financial loss if the company’s is growing too fast and fail
to integrate the acquired resources.
3) “Narrow And Deep” Marketing Approach (S3/W)
As mentioned at the company’s website, Activision Blizzard are moving towards
the “Narrow and Deep” marketing and developing approach iii. Instead of chasing
more new products, it concentrates on few successful products and make them
exceptionally well. Such approach can better utilize cooperate resources, reduce
investment risk, and improve overall qualities. However, the company may also
become short-sighted and too risk-averted.
4) Product Life Cycles – Matured Or Glowing (W)
With technologies change rapidly, the seemingly matured gaming software
industry overall may still have many potentials. Different gaming genres and
platforms are varied in their own product life cycles, so assuming the industry is
matured and try to maximize profit too early may restrain future potentials and
miss important opportunities. So it’s important to monitor different product life
cycles closely and constantly to adapt to new changes.
5) Lack Of Experiences In The Free-To-Play MMORPG Market And The New
Mobile/Tablet Platforms (W)
As the in game micro-transaction-based MMORPG games and the new
mobile/tablet platforms rise rapidly, Activision Blizzard are also moving into

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these new territories. However, it’s not easy to obtain, maintain, and monitor
profits in these fields, and compared to the existing players in the market,
Activision Blizzard may lack of the experiences and expertise to compete
aggressively.
6) Risk On Digital Content Distributions And Online Services (W)
The management of the Activision Blizzard also mentioned to focus more on the
digital content and online services v. Though it is a rising trend, there are still
technical complications and preference differences should be considered and
measured before go all out to digital.
2. Finance (refer to Appendix 1, 2, and 3 for detailed financial statements)
1) Experienced Top Managements In The Financial Fields (S)
Surprisingly, as an innovation and market-driven company, Activision Blizzard
has exceptional talents in the financial field. Most of the board directors and top
managements have background knowledge in the finance and accounting. It
seemed odd at first, but considering the company’s overall strategic directions and
performance, it has certain strategic importance.
2) Strong Financial Position (S4)
Due to its emphasis on financial control and management, the company has
superior financial performance compare to the industrial average. That gives the
company sufficient resources and flexibilities for the opportunities and challenges
ahead.
i. Net Income: 1.2% (Avg.) vs. 19% (ATVI), due to cost control and investment
management
ii. Cash: 26.3 % (Avg.) vs. 33% (ATVI), strong cash flow
iii. Account Receivable: 16.5% (Avg.) vs. 4 % (ATVI), effective payment
collection
iv. Account Payable: 6.6% (Avg.) vs. 2% (ATVI), keep up with the payments
v. Current Ratio: 1.36 % (Avg.) vs. 2.55 % (ATVI), assets can be quickly
converted into cash
vi. Debt/Equity Ratio: 1.73 % (Avg.) vs. 1.04 % (ATVI), relatively low debt
composition
vii. Grow Margin: 84.5 % (Avg.) vs. 65.4 % (ATVI), little red flag, lower than
average; may due to high product quality or inefficient usages of internal
resources (lack of synergy, idle resources, etc.)
3) Financial Leverage (S)
In addition to the strong financial control, the management also did an excellent
job on generating returns.
i. Return on Assets (ROA): 1.9 % (Avg.) vs. 7 % (ATVI), higher than average
ii. Return on Equity (ROE): 5.3 % (Avg.) vs. 14.16 % (ATVI), higher than
average

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4) Risk-Averted Operation (S)
Due to the increasing costs of new product development, managing product risk
has become a major challenge for many CFOsiv. Activision Blizzard, however,
has an overall risk-averted culture and systematic control on its product
development. Programs like the "Greenlight Process" includes in-depth reviews of
each project at several important stages of development by a team that includes
many highest-ranking operating managers to provide quality and risk controlsv.
7) Cyclical Nature Of Industry (W)
Game developers are challenged by higher costs at the same time revenues are
slowing; however, Activision Blizzard seems to realize this problem and striving
for better cost control and risk management.
3. Researchand Development (R&D)
1) Increasing R&D Costs (S/W)
Development costs are rising in recent years, increasing the risk of new product
development and require more expenses on researching and testing. However, this
capital-intensive trend also created a high entry barrier that in favor to the well-
established company like Activision Blizzard.
2) Dealing With The Innovator’s Dilemma (W4)
As a market leader in a constantly changing market, Activision Blizzard have to
face the innovator dilemma. The rise of the new gaming platforms and
technologies may force the established companies to drop some of their important
products and switch to the new technologies. Reluctant or fail to made the timely
changes can have disastrous consequences. As a company that is going too focus
and risk-averted, Activision Blizzard is especially susceptible to disruptive
technological changes.
3) Risk-Averted Approach May Slow R&D (W)
It is important to manage risks; however, being too risk-averted can inhibit the
company’s growth potential and may fall behind on researches and innovations of
the future technologies.
4. Operations and Logistics
1) In-House Expertise On Warehousing, Logistical And Sales Distribution (S)
Aside from the glamorous Activision and Blizzard business segments, Activision
Blizzard Distribution provides warehousing, logistical and sales distribution
service to both in-house and third-party publishers. This distribution segment in
Europe not only generates extra revenues, but also provides services and expertise
to the company’s logistic and distribution.
2) Reliance On Console Manufacturers (W)

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Accounted for over half of the company’s revenue, the sales of console gaming
software rely heavily on the console manufacturers. The company not only has to
pay royalties to some competitors for the use of their gaming platforms (Sony®
for PlayStation®, Microsoft® for Xbox®), but are also susceptible to the change
of the gaming platform market. Threats from new mobile and other gaming
platforms can decrease the popularity of the traditional console systems and affect
the company’s software sales.
3) Quick Order Fulfillment (S)
Initial order fulfillment can be immediate, and replenishment orders can normally
be filled in 7 to 21 days iv. Quick order fulfillment enable the company to be more
flexible and responsive.
5. Human Resources Management (HRM)
1) Location Proximity To Human Resources (S)
The US video game industry is highly concentrated in California, which accounts
for 40 percent of employment iv. The headquarter of the Activision Blizzard is
located in Santa Monica, California, so the company can enjoy the clutter effect
and find the best talents and resources of the gaming industry.
2) Attract And Retain The Brightest Minds (S5)
The gaming industry is mainly driven by innovation and creativity, so it is
important for the company to attract and retain the brightest minds. Activision
Blizzard realized the importance of finding and keeping the best employees. It
spends a big part of its official websites to describe and promote its fun culture,
exciting pays and perks, and excellent career developments. Furthermore, to
minimize the talent loss during the product developments due to the demanding
nature of the gaming industry, the company usually signs fixed-term (1 to 5 years)
employment agreements with executive officers or key members of the product
development, sales, or marketing divisions to reduces the turnover rate.
3) Relationship With The Employees (S)
As one of the Fortune 100 Best Companies to work for in 2015, Activision
Blizzard maintain a good relationship with its employeesiii. As mentioned in the
annual report, the company has not experienced any labor-related work stoppages
v.
4) Potential Cultural Conflicts (W)
As mentioned, the frequent acquisitions, mergers, and alliances may lead to
cultural conflicts and increase the turnover rate.
6. Information Technology (IT)
1) Customer Relationship Management through Information Technology (W5)

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Customer Relationship Management (CRM) includes but not limit to the
management of customer database, customer analysis, customer support,
customer interaction, and customer relationship building. The company is doing
fine for the first three areas; however, the performance is inconstant for the last
two areas. For example, Blizzard is well-known for its presence in the online
gaming community and its online forums are neat and pleasing. In the contrast,
Activision’s online forums and communities are mainly for technical supports and
general Q&A, and they appear to be cluttered and disorganized.
2) Developing Robust Server Capabilities (S)
Server capacity and stability are essential to video gaming, especially for the
MMORPG genre. As the market leader, Activision Blizzard rarely experiences
any problems on its servers and online communities.
E. Summary
IFAS for Activision Blizzard, Inc.
V. Analysis of Strategic Factors (SWOT)
A. Situational Analysis
Strategic Factors for Activision Blizzard, Inc.
Internal Factors WeightRatingWeighted ScoreComments
Strengths
S1 Divisionalcorporate structure based onproduct line 0.05 4.00 0.2 Preserve independence and competitive advantages for each specific segment
S2 Market leaders with well-established titles and franchises 0.20 4.80 0.96 Account most ofthe company's revenues, brand recognition
S3 "Narrow and Deep"approach 0.10 4.00 0.4 Reduce risks and concentrate resources on promising titles
S4 Strong financialposition 0.15 4.50 0.675 Sufficient resources and flexibilities
S5 Attract and retain the brightest minds 0.10 4.30 0.43 Important for sustain developments
Weaknesses
W1 Hit-or-miss high risk business model 0.10 4.8 0.48 Company is managing it well, but require constant care
W2 Different segments operate separately with little interaction 0.10 3.00 0.3 Lack ofsynergy and horizontalcommunication
W3 Conflicts between the company and its subsidies' approaches 0.05 3.20 0.16 Confusionand conflicts may rise
W4 Dealing with the innovator’s dilemma 0.05 3.00 0.15 Company is susceptible to disruptive technologicalchanges
W5 Mediocre online customer relationship management (CRM) 0.10 3.80 0.38 Rooms for synergy and improvements
Total Scores 1.00 4.135

Yali Wen 31
B. Review of Missionand Objectives
While Activation’s mission statement focus on market share, profitability, and
recognition, Blizzard focus on gameplay experiences and performances. Such differences
also reflected on the inconstancies among the company’s objectives, strategies, policies.
Activision’s approach gives the company edges on market expansion, risk management,
and financial performance. Blizzard’s approach enhances the company’s ability to adapt,
to create, and to communicate. They are both important concepts in the gaming industry,
and they can complement each other. However, they can be contradictory to each other
from time to time, and judging from the inconsistencies, the company did little to
integrate these two concepts. Lack of understanding and integration will not only lead to
conflicts and confusions, but also undermine the potential synergy from merging two
successful companies.
The company should spend some time to integrate and clarify its overall mission,
objective, strategies, and policies. It should also establish a review and discussion process
when conflicts arise between two somewhat contradictory concepts.
The change will form synergy, improve the company’s effectiveness and efficiency, and
open up more resources for opportunities.
VI. Strategic Alternatives and Recommended Strategy
A. Alternatives Strategies
1. Internal Concentration (Growth)
a. Definition
Strategic Factors WeightRatingWeightedScoreShortIntermediateLongComments
O2 Technologyadvancement 0.15 4.30 0.65 X More opportunities for newproduct developments
O3 Online communities and socialnetworkingwebsites 0.05 3.50 0.18 X Not fullyutilize the potentialofthese websites (especiallyActivision)
O5 Potentialofthe Chinese market 0.10 3.80 0.38 X Attractive market withmanychallenges
T2 More massivelymultiplayer online games 0.15 3.80 0.57 X Stiffcompetitionis threateningthe company's market position
T3 Mobile/casualgaming 0.10 3.50 0.35 X Dividinggamers' attentions fromtraditionalgaming
S2 Market leaders withwell-established titles and franchises 0.15 4.80 0.72 X Account most ofthe company's revenues, brand recognition
S3 "Narrowand Deep"approach 0.10 4.00 0.4 X Reduce risks and concentrate resources onpromisingtitles
S4 Strongfinancialposition 0.10 4.50 0.45 X Sufficient resources and flexibilities
W2 Different segments operate separatelywithlittle interaction 0.05 3.00 0.15 X Lack ofsynergyand horizontalcommunication
W5 Mediocre online customer relationship management (CRM) 0.05 3.80 0.19 X Rooms for synergyand improvements
TotalScores 1.00 4.03

Yali Wen 32
Corporation can grow internally within current industry by expanding its
operations both globally and domestically
b. Business Level
Differentiation
It is important to separate yourself from the clutter and develop big hits in
the gaming software industry.
First mover
Innovation and R&D are essential to success.
c. Functional Level
Marketing
Product and market development: develop new products and explore new
markets
Pull: attract the end users (gamers)
Skim pricing: new games often sell for premium to recover development
costs
International expansion
R&D
Leader in R&D and technologies
Logistic
Centralization: efficiency
HRM
Diverse workforce: better prepare for international expansion
d. Pros
1) Increase revenue and market share
2) Pursue new opportunities
3) Offer more job and advancement opportunities
e. Cons
1) Mask flaws in a company
2) Risks to going international
3) New games may cannibalize the market share of existing franchises
4) Inconstant with the company’s “Deep and Narrow” approach
2. External Concentration/ Vertical Grow (Growth)
a. Definition
Grow through merges, acquisitions, strategic alliances, etc.
Value Chain of the Gaming Software Industry
Investment Layer  Design & Creative Layer (New acquired or merged
layer)  Production & tools layer  Publisher/Distribution  End User
Before Activation Blizzard, Activision was originally a game publisher and
distributor. Over the years, it adopted the investment layer and expand to the
design and production layers through merging, acquiring, and forming alliances
with other game developer and studios with successful titles.
The merger with Blizzard in 2008 was a major strategic integration.

Yali Wen 33
b. Business Level
Differentiate
Late mover
Invest after the success is somewhat warranted, lower development costs
and risks
Cooperative strategy
Success through invest in or partner with companies with potentials
c. Functional Level
Marketing
markets
costs
International expansion through strategic alliances
R&D
Follower to lower R&D cost
Logistic
HRM
Diverse workforce: better prepare for international expansion
Self-managed work team: to manage the acquired titles
d. Pros
1) Increase revenue and market share
2) Pursue new opportunities
3) Reduce costs from developing new titles from ground up
e. Cons
1) Acquisitions can be expensive, especially for successful titles
2) Risks and costs may exceed benefits
3) Mechanically gobble up successful titles without integration may decrease
overall gross margin
3. Concentric (Related) Diversification (Growth)
a. Definition
Diversity to related industry like toy, action figure, or clothing, etc.
b. Business Level
Differentiation
It is important to separate yourself from the clutter and develop big hits in
the gaming software industry.
c. Functional Level
Marketing
markets
Pull: attract the end users

Yali Wen 34
costs
Brand extension: use established brands to enter other industry
Logistic
d. Pros
1) Safety net in case disruptive technologies emerge and the traditional gaming
become unattractive
2) Extra revenue and publicity
3) Develop new skill sets
e. Cons
1) Current gaming industry is still very attractive
2) Risky to go into unfamiliar industry
3) Brand dilution
4) Overstretch capitals
4. Pause/Proceed with Caution (Stability)
a. Definition
A temporary strategy that continues current activities with only incremental
improvements. It allows the company to address potential problems, improve
current products, clarify its strategic directions, and promote synergy within the
company.
b. Business Level
Late mover
Do not rush to release new hit titles, focus on nurturing and improving
current franchises
Differentiate
Through constant improvement on existing product qualities
c. Functional Level
Marketing
Maintain current market share and manage customer relationship
Avoid market cannibalization
costs
R&D
Open innovation: utilize creativity and resources from both employees and
the fans
Logistic
HRM
More cultural integration activities for employee
d. Pros
1) Consolidate its resources after rapid growth
2) Reevaluate and integrate corporate culture among different business units

Yali Wen 35
3) Pursue internal improvements and synergy
4) Company’s competitive advantages (successful and profitable franchises) can
sustain for a short period of time
5) Avoid market cannibalization due to too many new titles too soon
e. Cons
1) May miss opportunities
2) May lose market share in prolong usage
3) May lose drives on innovations and growth in prolong usage
4) May fall behind in product innovations
B. RecommendedStrategies
Pause/Proceedwith Caution (Stability)
1) I recommend for a short period of time (less than a year), the company as a whole
should adopt the pause/proceed with caution (stability) strategy along with the
business and functional strategies listed above. While the company and its business
units continue current activities with constant incremental improvements, the
corporation as a whole should improve communication and integration between
different business units.
2) As detailed under the “Review of Mission and Objectives” section, both Activision
and Blizzard’s approaches and strategies are essential to address the company’s
strategic factors. Consolidate its resources after rapid growth helps the company to
better utilize existing resources and achieve more synergy, and therefore, lead to more
long-term successes. In the short-run, Activision Blizzard has enough successful
franchises to sustain the company for a short period of time. Deferring the releases of
new franchises and titles can not only allow the company to perfect its current and
developing products, but also avoid market cannibalization due to too many new
products.
3) Activision segment should follow Blizzard’s example and establish more policies that
are aligned to the segment’s mission, strategies, objective, and culture. The company
as a whole should take into account the knowledge and philosophies of all business
units to clarify its overall strategic direction. For example, Activision’s “Greenlight
Process” policy may be utilized throughout the whole organization to improve overall
efficiency. Blizzard’s “Eight Principles” policy can be used to promote a more fun
and performance-driven corporate culture. Most importantly, new policies should be
established to maintain structural independence, facilitate intercommunication, and
solve conflicts among different business units.
4) Following this strategy can improve the company’s overall performance.
VII. Implementation
Objective:

Yali Wen 36
Achieve synergy between different business units and improve Activision
Blizzard’s overall online gaming community
Achieve Synergy:
Internal Online Community (Shared know-how):
To facilitate communication and harvest ideas throughout the
organization, the R&D and IT department can establish an online internal
community called “Idea Board” to allow employees from different
business units to exchange ideas, knowledge, and expertise. To promote
communication among the company, employees from different business
segments are encouraged to team up to participate regular idea contest to
get rewards. Ideas from this internal forum can be organized and reviewed
by R&D and marketing personnel for future references and creations.
Culture Integration (Coordinated Strategies):
On top of the internal online community, the company’s HRM department
can promote culture integration through various educational programs on
the philosophies and cultures of different business units. Combining the
wisdoms from different business units, the top management of Activision
Blizzard should come up with some more unified cooperate mission,
strategies, objectives, policies, and culture that can be carried out
throughout the company.
Improve Online Gaming Community
External Online Community
Similarly, beside the regular technical support and FAQ, the company’s
online communities should consider to summon new ideas from fans. But
first of all, the company, especially the Activision segment should
improve its online forums. Compared to Blizzard’s Battle Net (a well-
established online community for Blizzard’s products), Activision’s online
forums are disorganized and confusing. Fans are divided into numerous
similar forums and finding even the most basic information can be a
hassle. As mentioned in Hoover’s Business Profile, “both Activision's Call
of Duty and Blizzard's World of Warcraft depend on a robust social
gaming community for their success, so maintaining and enhancing that
aspect is also a core component of the company's strategy”vi, and the
company should combine the expertise from both segments to improve its
current online communities.
Other Programs

Yali Wen 37
Opportunity Scanning Team
While temporarily adopting the stability strategy, the company should still
keep an eye on the market and its competitors. R&D and marketing
department should deploy opportunity scanning team to find the next big
hits, new gaming technologies, rising trends, emerging markets, and other
opportunities.
Financially Feasibility
The cost for these programs are mostly from new hiring and technical supports,
and it should not exceed the company’s budget. The results can be evaluated by
the company’s cultural environment, communication effectiveness, and
operational efficiency. Specific improvements are also reflected on its marketing
and financial performances.
VIII. Evaluation and Control
Measurements:
Measuring Synergy:
1. Compare gross profit margin changes
2. Compare overall performance changes
3. Measure the quantity and the quality of the ideas generated internally
4. Assess employees’ feeling towards the company’s culture,
performance, and strategic directions (whether they are clearly stated
and easy to follow) before and after the changes
Measuring Other Changes:
1. Measure customers’ satisfaction rate on the improved online forums
2. Measure customers’ participation rate on the improved online
community
3. Measure the stickiness of the improved online community
4. Measure the quantity and quality of the ideas generated externally
Controls:
Internal Control
Analyze the end results of the measurement stated above.

Yali Wen 38
Behavior controls
Standard operating procedures for conflict resolution (general discussions
among key stakeholders, evaluation committee, etc.)
Policies that promote integration and communication
Input control
Exchange programs to assign people with expertise to support other
business segments (be aware of the feeling of “turf protection” and
alienation)
Educational tours to other business units
Summary
The company’s current information system and technological expertise should be
able to provide sufficient feedback on implementation activities and performance.
The results can be measured by projects and the overall changes within the
company. There is no benchmarking needed and the main focus is to compare to
the past performance.
The standards and measurements stated above are sufficient to ensure
conformance. Rewards and recognitions should be dispensed specifically to
people who contributed to the projects, who participated the project, and who
assisted the projects.

Yali Wen 39
Appendix 1
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
PARTIAL CONSOLIDATED BALANCE SHEETS
(Amounts in millions, except share data)
At December 31, 2014 At December 31, 2013
Assets
Current assets:
Cash and cash equivalents 4,848$ 33% 4,410$ 31%
Short-term investments 10 0% 33 0%
Accounts receivable 659 4% 510 4%
Inventories, net 123 1% 171 1%
Software development 452 3% 367 3%
Intellectual property licenses 5 0% 11 0%
Deferred income taxes, net 368 2% 321 2%
Other current assets 444 3% 418 3%
Total current assets 6,909 47% 6,241 45%
Long-term investments 9 0% 9 0%
Software development 20 0% 21 0%
Intellectual property licenses 18 0% N/A
Property and equipment, net 157 1% 138 1%
Other assets 85 1% 35 0%
Intangible assets, net 29 0% 43 0%
Trademark and trade names 433 3% 433 3%
Goodwill 7,086 48% 7,092 51%
Total assets 14,746 100% 14,012 100%
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable 325 2% 355 3%
Deferred revenues 1,797 12% 1,389 10%
Accrued expenses and other liabilities 592 4% 636 5%
Current portion of long-term debt N/A 25 0%
Total current liabilities 2,714 18% 2,405 17%
Long-term debt, net 4,324 29% 4,668 33%
Deferred income taxes, net 114 1% 66 0%
Other liabilities 361 2% 251 2%
Total liabilities 7,513 51% 7,390 53%
Shareholders' equity:
Total shareholders' equity 7,233 49% 6,622 47%
Total liabilities and shareholders' equity 14,746 100% 14,012 100%

Yali Wen 40
Appendix 2
ACTIVISIONBLIZZARD,INC.ANDSUBSIDIARIES
PARTIALCONSOLIDATEDINCOMESTATEMENT
(Amountsinmillions,exceptsharedata)
AtDecember31,2014 AtDecember31,2013 AtDecember31,2012
Netrevenues
Productsales 2,786$ 63% 3,201$ 70% 3,620$ 75%
Subscription,licensing,andotherrevenues 1,622 37% 1,382 30% 1,236$ 25%
Totalnetrevenues 4,408 100% 4,583 100% 4,856$ 100%
Costsandexpenses
Costofsales—productcosts 999 23% 1,053 23% 1,116$ 23%
Costofsales—online 232 5% 204 4% 263$ 5%
Costofsales—softwareroyaltiesandamortization 260 6% 187 4% 194$ 4%
Costofsales—intellectualpropertylicenses 34 1% 87 2% 89$ 2%
Productdevelopment 571 13% 584 13% 604$ 12%
Salesandmarketing 712 16% 606 13% 578$ 12%
Generalandadministrative 417 9% 490 11% 561$ 12%
Totalcostsandexpenses 3,225 73% 3,211 70% 3,405$ 70%
Operatingincome 1,181 27% 1,372 30% 1,451$ 30%
Interestandotherinvestmentincome(expense) (202) -5% (53) -1% 7$ 0%
Incomebeforeincometaxexpense 981 22% 1,319 29% 1,458$ 30%
Incometaxexpense 146 3% 309 7% 309$ 6%
Netincome 835 19% 1,010 22% 1,149$ 24%

Yali Wen 41
Appendix 3
i
Activision Blizzard, Inc. (ATVI). (2015). CSI Market. Retrieved from http://csimarket.com
ii
Activision Blizzard's revenue from 2007 to 2014. (2015). Statista. Retrieved from
http://www.statista.com
iii
Our company & corporate governance. (2015). Activision Blizzard, Inc. Retrieved from
http://www.activisionblizzard.com
iv
Industrial profile: entertainment & games software. (2013). First Research. Retrieved from
http://proquest.com
v
Activision Blizzard, Inc. 10-k annual report. (2013). EDGAR Online. Retrieved from
http://proquest.com
vi
Activision Blizzard, Inc. (2015). Hoover’s Company Records. Retrieved from http://www.hoovers.com

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